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Is it convenient to modify the fiscal tax regime to increase the earnings of the Chilean State derived from private mining activities?
By
Carlos Prat
Abstract
For the last two years, there has been a debate regarding the possibility of modifying the Chilean fiscal regime in order to increase State revenues from mining activities. On the 15 th of December 2004, the Government submitted a new royalty bill to the National Congress. Under the terms of this legislation, large-scale mining producers would be charged an ad-valorem royalty. The proposed levy would alter two principles of the Chilean fiscal regime: the principle of non-discriminatory treatment to the different economic actors and the principle that the use of tax instruments should focus on profits rather than production. The objective of this dissertation is to determine whether or not it would be to Chile’s benefit in the long-term to alter the essential principles of the fiscal regime in order to increase the State’s mining-related revenues. In order to address the above question, this analysis first identifies the special features of mining activities and what sound types of elements and tax methods a fiscal regime should include. It also explores the Chilean legal and fiscal framework for mining activities and examines the reason why the Country implemented open investment policies and profit-oriented tax methods in the past. At that point, the reader will be in a position to understand why mining companies have not paid high taxes in the last fifteen years and why this does not mean that they will not pay higher taxes in the future. In the concluding section of this dissertation, an attempt is made to demonstrate that it would not be wise to implement an ad-valorem royalty as a means of increasing tax revenue because, in the long-term, these kinds of charges would impair the competitiveness of the Country, the profitability of the sector and the Government’s ability to maximize its tax receipts.
Carlos Prat
From Dissertation for a Master in Laws in Mineral Law and Policy, CEPMLP/Dundee, January 2005
(added 23 May 2005)
